2008 (6) TMI 250 - AT - Income Tax

Trading addition - Deduction u/s. 80HHC - Disallowance towards office expenses and car expenses. Trading addition - Estimation of income - Bogus Purchase - claimed to have made purchases of goods from different parties - CIT(A) deleted the addition made by the AO by applying GP rate - HELD THAT - We are of the view that the AO was not justified in doubting the genuineness of the claimed purchases made by the assessee from the said four suppliers merely on the basis that on subsequent occasion the parties were not found on the given addresses or in some other cases some connected person to the supplier had stated that they were only issuing bills without supplying the goods or that the money paid by the assessee against the purchases was withdrawn by those parties. Undisputedly, after completion of transaction a purchaser cannot have any control over the suppliers and suppliers are always at liberty to use the money paid to them against the goods sold by them - We are thus of the view that in absence of any positive evidence that the goods were not purchased from the four parties but from some named person or that the money paid by the assessee against the goods was ultimately returned to the assessee by the suppliers, there was no occasion before the AO to deny the claimed purchases especially when the genuineness of the export of those goods by the assessee has been accepted by the AO. The learned CIT(A) has thus rightly deleted the addition made by the AO by applying GP rate after disbelieving the genuineness of the claimed purchases made from the four parties. The first appellate order in this regard is thus upheld. The ground No. 1 is accordingly rejected. Deduction u/s. 80HHC - received delayed payment - HELD THAT - We are of the view that there was no occasion before the learned CIT(A) to entertain those claims of deduction u/s. 80HHC which were ultimately withdrawn by the assessee before the AO and the learned CIT(A) was to restrict to the extent of remittance received within time or extended time and in the alternative to be computed on the basis of business income - We, find that the learned CIT(A) in conclusion of the issue raised before him regarding disallowance of deduction u/s 80HHC has directed the AO only to recompute the deduction u/s. 80HHC on the basis of business income finally determined in view of his decision in respect of ground Nos. 1 to 4. In the ground Nos. 1 to 4 before him the issues raised were regarding trading addition, disallowance made out of office expenses, telephone expenses and car expenses - We thus do not find substance in the issue raised in ground No. 2 of the appeal as not arising out of the first appeal in question. The ground No. 2 is thus rejected - appeal is dismissed. Disallowance towards office expenses and car expenses - HELD THAT - On perusal of orders of the lower authorities, we find that the AO had made above disallowances on account of personal user of telephone and car and office facilities in absence of maintenance of proper record @ 10 per cent out of office expenses, 20 per cent out of car expenses and depreciation thereon and 20 per cent out of telephone expenses - We, however, considering the totality of facts and circumstances of the case especially nature of the business i.e. export are of the view that disallowance of 10 per cent out of the claimed expenses on office, car and telephone will meet the end of justice. We order accordingly. The cross-objection is partly allowed. In result appeal is dismissed and Cross objection is partly allowed.

Issues Involved:

1. Deletion of trading addition by the AO by applying the GP rate.
2. Allowance of deduction under Section 80HHC on delayed payments received.
3. Disallowance of office, telephone, and car expenses.

Issue-wise Detailed Analysis:

Ground No. 1: Deletion of Trading Addition by the AO by Applying the GP Rate

The assessee, an exporter of precious and semi-precious stones, had its purchases from M/s M.D. Exports, Akshita Exports, Ambika Exports, and Colour Gem Exports questioned by the AO for their genuineness. The AO rejected the books of accounts and estimated the income by applying a GP rate of 35%, resulting in a trading addition of Rs. 5,54,318. The CIT(A) deleted these additions, accepting the assessee's submissions that the purchases were genuine, supported by necessary documents and payments made by cheques. The Revenue challenged this deletion.

The Revenue argued that the suppliers were not found at the given addresses and were involved in providing accommodation entries without actual supply of goods. The AO's investigation revealed that the cheques issued for purchases were eventually withdrawn in cash, suggesting non-genuine transactions.

The assessee countered that all necessary documents, including sale bills, bank statements, and confirmations from suppliers, were provided, proving the genuineness of the transactions. The goods were exported and payments received through proper banking channels, verified by customs authorities.

The Tribunal found that the assessee had discharged its initial onus by providing detailed documentation and confirmations. The Tribunal held that the AO was not justified in doubting the purchases merely because the suppliers were not found later or due to statements made by third parties without giving the assessee an opportunity to cross-examine. The Tribunal upheld the CIT(A)'s deletion of the trading addition, concluding that the AO lacked positive evidence to deny the purchases, especially when the exports were verified.

Ground No. 2: Allowance of Deduction under Section 80HHC on Delayed Payments Received

The Revenue contended that the CIT(A) erred in directing the AO to allow deduction under Section 80HHC on delayed payments, which the assessee had withdrawn before the AO. The assessee argued that the CIT(A) only directed the AO to recompute the deduction based on the finally determined business income, and this was different from what the Revenue questioned.

The Tribunal noted that the CIT(A) directed the AO to recompute the deduction under Section 80HHC based on the business income determined after addressing other grounds. The Tribunal found no substance in the Revenue's issue as it did not arise from the first appeal. The Tribunal upheld the CIT(A)'s direction to recompute the deduction and rejected the Revenue's ground.

C.O. No. 25/Jp/2008: Disallowance of Office, Telephone, and Car Expenses

The assessee objected to the disallowance of Rs. 4,048 out of Rs. 40,485 towards office expenses, Rs. 11,837 out of Rs. 59,485 towards telephone expenses, and Rs. 5,032 out of Rs. 14,113 towards car expenses. The AO made these disallowances for personal use in the absence of proper records, applying rates of 10% for office expenses, 20% for car expenses and depreciation, and 20% for telephone expenses.

The Tribunal, considering the nature of the assessee's business and the totality of the circumstances, deemed a 10% disallowance for office, car, and telephone expenses appropriate. The Tribunal partly allowed the cross-objection, modifying the disallowance rates accordingly.

Conclusion:

The appeal (ITA No. 381/Jp/2008) was dismissed, and the cross-objection (C.O. No. 25/Jp/2008) was partly allowed.

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